as it appears channel users with level of Moderator and above can easily see the "Initial IP" of others in the channel, what issues does this raise?

I am not sure exactly what "Initial IP" means, but it appears to be the actual user IP being reported, though certainly a user may be connecting through a proxy of some sort or even perhaps tor.

Does it come down to simply social trust?

If so, would limiting higher levels of channel status would be recommended?